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    Top Earners

    Oct 20 • Behavioral Economics, Households • 618 Views

    A quiz:

    • Looking at the top 1% of earners, how many are in financial services?
    • Close to 75%, 50%, 25% or 10%?
    • The answer: 10% (or precisely 13.9%)


    • How much does the top 1% earn?
    • The 1% threshold is close to $350,000. $200,000, top 5%; 150,000, top 10%; $100,000, top 25%.
    • Here, you can identify your income group. (Stats are for adjusted gross income, 2009.)

    And finally, with Occupy Wall Street expressing anger about money moguls, do most people agree? This Gallup survey concludes that more of us blame government than Wall Street for our economic difficulties.

    These Occupy Wall Street interviews from NPR’s Planet Money provide an unfiltered look at individual protestor’s goals. They let us form our own opinion of the group’s objectives.

    The Economic Lesson
    Saying that education is crucial for income mobility, a 2010 study from the OECD concludes that U.S. intergenerational mobility is relatively low. In other words, fathers and sons, mothers and daughters remain close to the same rung on a social mobility ladder.

    By contrast, this 2007 report from the U.S. Treasury indicates that there is considerable income mobility in the U.S. Describing a hotel with luxurious rooms and shabby rooms, they say that, “…those in small rooms have an opportunity to move to a better one, and that the luxurious rooms are not always occupied by the same people. The frequency with which people move between rooms is a crucial aspect of the trend in income inequality in the United States.”

    An Economic Question: Explain why you would accept income inequality as a consequence of a market system or support more government redistribution of income through taxes.

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    Defrosting the Doughnut Hole

    Oct 19 • Businesses, Demand, Supply, and Markets, Developing Economies, Environment, International Trade and Finance, Macroeconomic Measurement, Thinking Economically • 588 Views

    A global phenomenon will open up new areas for oil exploration, enable ships to take shortcuts, and provide easier access to world markets for iron ore and other minerals.

    The phenomenon? Global warming.

    Because of global warming, the polar ice sheet is shrinking. With this summer having been one of the warmest on record, ships are traveling from Murmansk, near Finland, across the top of the world to Asia in record time. Scientists predict that by 2050, this Northeast Passage will be ice-free during the summer.

    A navigable Northeast Passage means shorter travel time from Europe to Asia and competition for the Suez Canal. It means previously inaccessible resources can now be drilled and mined and transported.

    That takes us to the Arctic Ocean doughnut hole. A huge fishing area that is beyond any nation’s jurisdiction, as it melts, the doughnut hole will attract fishing vessels from around the world.

    Our bottom line? Global warming could have environmental positives that would include huge energy and mineral discoveries, and emissions reduction and cheaper transport from shorter routes.

    The Economic Lesson

    Perhaps one of the first environmentalists, Reverend Thomas Malthus told us in 1798 that population grows geometrically while resource production expands arithmetically. Consequently, resource prices will rise and supply will become increasingly inadequate.

    You can see though, that environmental predictions are tough to make. This NY Times Magazine article describes the bet between the boomsters who said we would not exhaust our resource supply and the doomsters who said we would.

    An Economic Question: Whenever a transaction between two parties affects a third, uninvolved individual or group, economists see an externality. How does global warming relate to positive and negative externalities?

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    The Blackberry Disruption

    Oct 18 • Behavioral Economics, Government, Innovation, Regulation, Thinking Economically • 528 Views

    Last week’s Blackberry blackout saved lives.

    In Dubai, traffic accidents dipped 20%. For Abu Dhabi, the decrease was 40%. Considering that there is approximately 1 traffic accident every 3 minutes in Dubai and a traffic fatality every 2 days in Abu Dhabi, safety soared.

    A fascinating, unintentional experiment.

    The Economic Lesson

    The implications of the Blackberry outage are multiple. Municipal expense, insurance, regulation and privacy are only several of the issues touched by how we use smartphones.

    All though take us to the economic definition of cost. When we choose to use our smartphones everywhere, what are we sacrificing? 

    An Economic Question: Listing costs and benefits, assess the impact of smartphones on our lives.

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    Another Amazing Entrepreneur

    Oct 17 • Businesses, Demand, Supply, and Markets, Economic Thinkers, Innovation, Labor, Thinking Economically • 655 Views

    From this WSJ description of Jeff Bezos, you can tell he is an amazing entrepreneur. The article is wonderful. Here are some of the facts:

    • Named Cadabra until someone accidentally called it “cadaver,” Amazon was launched in Seattle on July 16, 1995.
    • Founder Jeff Bezos had employees wrapping books on the floor until (he said) an employee had “the most brilliant idea I had ever heard in my life.” Buy tables.
    • Fueled by 10% to 30% discounts, daily volume slowly grew until Yahoo put Amazon on its “What’s Cool” page.
    • Urged to speed through emails when business skyrocketed, the fastest employees could do 12 a minute.
    • Asked about employees sharing ideas, Bezos replied, “No. Communication is terrible.”
    • To minimize “groupthink,” he implemented the “two-pizza team” rule.
    • Bezos recently patented being able to return gifts before receiving them.

    For more about what makes an entrepreneur, you might enjoy reading this Wired, Jonah Lehrer article.

    The Economic Lesson

    Joseph Schumpeter (1883-1950) said that entrepreneurs propelled capitalism through creative destruction. New ideas destroyed the status quo but led to economic growth. The auto killed the buggy whip. The transistor replaced the vacuum tube. And Amazon has eradicated the large booksellers and transformed publishing.

    An Economic Question: Why do you think the large booksellers like Barnes & Noble would have had difficulty copying with Amazon’s innovations?

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    More Sole Rights

    Oct 16 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Developing Economies, Labor, Regulation, Thinking Economically • 614 Views

    Should a musician be happy with file-sharing and piracy? Maybe.

    According to a recent study of counterfeits, certain businesses should welcome “fakes.” The study looked at counterfeit footwear from China. Sold in the U.S., the fakes affected the real thing in 2 ways.

    • For more expensive footwear (knee-high boots were cited), the knock-offs served as advertising.
    • For the least expensive shoes, sales declined because consumers bought the counterfeit instead of the original.

    The connection to music? The author of the footwear study cites the advertising value of piracy and file-sharing in the music industry.

    Here, in “Sole Rights,” and here in “Fashion Rules,” econlife looks at branding.

    The Economic Lesson

    When free trade pact negotiators refer to their TRIPs, they are not talking about traveling. Instead, they are looking at Trade Related Intellectual Property. TRIPs discussions frequently focus on counterfeit products.

    Just like a building–the physical property that a firm owns–so too can businesses claim possession of their brand, their intellectual property. Trade pacts create reciprocal intellectual property rights. They make counterfeit goods illegal for the exporter and the importer. So, TRIPs can diminish the amount of trade-related counterfeit goods.

    An Economic Question: How might 18th century economist David Ricardo (1772-1823) have felt about TRIPs?

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